The Dividend Cafe - The DC Today - Monday, August 14, 2023

Episode Date: August 14, 2023

Today's Post - Economic Front Producer Prices were up +0.8% year-over-year in July (yes, less than 1%). Prices for intermediate processed goods are down -7.8% versus a year ago. The University of Michigan Consumer Confidence Index came in at 71.2 on the month, down a whisker from last month’s 71.6 but up a good deal from the June print of 64.4 I did get a fair amount of inquiry about the news that total U.S. Credit card debt had exceeded $1 trillion last week. That the total number goes up and down year by year is actually the new news, since from 1958 to 1990 it only went up every single year without exception. But people do not realize – throughout the pandemic $150 billion was paid off the balances of U.S. credit card holders (I am sure some of this was use of stimulus money, and some was re-financing mortgage debt at historically low rates). Income and assets have grown more than credit card debt for those who hold the bulk of U.S. credit card debt. And most importantly, debt service payments as a percentage of household income sits below 10% right now. it had been over 13% prior to the financial crisis. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Welcome to the DC Today, your daily market synopsis of the Dividend Cafe, brought to you every Monday through Thursday to bring you up-to-date information and perspective on financial markets. Well, hello and welcome to the Monday edition of DC Today. This is one of those rare times I was thinking about this. If it's the second, it might be the third time ever where I'm recording just before the market is closed. I know I did it in Washington, DC actually a month ago, but I'm not sure if it's ever happened other than that. But the reason is just that as I'm literally sitting here recording, it's 10 minutes until the market closed, but I have to go into a meeting right at one o'clock. So I'm doing this now. And you know, maybe the market will go up 500 points in the last five minutes, or it'll go down 1000 points or something. But I don't think so. I think we kind of a general feel for where we are in the day. And if anything goes off from there, then it's just simply because of trying to record a few minutes prematurely. The data, the numbers, the closing figures in the written DC Today will all be the final ones.

And there is, as is often the case Monday, a full length DC Today covering our normal categories. And I just figured I'd go through some of that content with you right now. You know, the futures opened up last night, Sunday, up about 40 points. And by the time I went to bed, they were down 80. And then they were up about 50 points at 3.30 in the morning Pacific time. Then the market opened down 100 points. And as we sit here right now, the Dow is down about 40. The S&P is up about a third of a percent and the NASDAQ is up about 0.8%. You're having a good day in some of those big tech companies that have been struggling lately. So markets, you know, from a Dow standpoint, it's kind of within the last 24 hours, been anywhere from

down 100 to up 100 and everywhere sort of in between. Not a lot of movement, not a lot of excitement. We're on the other side of the bulk of in between. Not a lot of movement, not a lot of excitement. We're on the other side of the bulk of earnings season. We're on the other side of CPI. You're a good six weeks still from the next Fed meeting. And so I don't anticipate there being a whole lot of drama. Speaking of that Q2 earnings season, we started off with consensus expectations

where the earnings were going to be down about 5.7% year over year, which was itself significantly better than what had been expected six months earlier. People say, why did the market do so well at the earnings season? It looks like we're going to end up down earnings being 3.8% lower than they were a year ago. So the number that was already much better than previously expected ended up being worse than what things actually were. Earnings doing better than expected even as they were just barely down year over year. You had 79% of companies outperform what was their expectation. Normally you have about 65, 66% do so. And so you just

kind of had companies that had come into earnings season a little overly cautious and real life results ended up doing better than had been anticipated. On the news cycle, I think we're all aware of the tragedy going on in Maui. You're at roughly 100 lives lost already making it the deadliest natural wildfires in over 100 years in our country the repair recovery costs are expected to be north of 5 billion dollars so major story there in terms of the recovery aspect of what will take place in this tragedy in Maui

I stay away first of all I can't what will take place in this tragedy in Maui. I stay away. First of all, I can't on a daily basis in D.C. today go into all of the new stuff with Hunter Biden, the Joe Biden investigation stuff, the Donald Trump's different arrests and indictments. I just I barely ever touch it in D.C. today because I think you guys hear about it plenty other places. DC Today, because I think you guys hear about it plenty other places. I'm sure that if I talk about either side of these things long enough, I will end up offending somebody. And I really don't want to talk about any of it at all, ever. But from a newsworthy standpoint, a special counsel being investigated, excuse me, being opened up on Friday is certainly newsworthy on this Hunter Biden investigation. The U.S. attorney from Delaware, David Weiss, being appointed special counsel. Special counsels are becoming much less

special than they used to be, just very frequent. Big news story over the weekend, it's hit markets throughout today and not hit in a negative way, but I think it's substantial, even though these are not involving companies that we own at our firm. But U.S. Steel, which actually we did own U.S. Steel 15 years ago, a little, no, it was after financial crisis. So let's call it 14 years ago. But U.S. Steel, one of the oldest companies that had been in the Dow, you know, for a long, long time, got an unsolicited bid from a competitor Cleveland cliffs and they've rejected it, but you know, there's negotiations and things going on there. And the reason I bring it up is because of my theme about China,

about reshoring, about onshoring, about factory manufacturing. And, and the two, if Cleveland cliffs and the U S Steel came together, it would be steel production behemoth, where right now all the largest steel production companies in the world are pretty much in China. So we'll follow that more. Speaking of which, the Biden administration, just on the public policy front, did go forward with their limits on investment in China, did go forward with their limits on investment in China, more cautious in these restrictions than many had wanted, but nevertheless, enough to get some real retaliation threats from Chinese leaders and effectively, you know, putting into this what amounts to capital controls in a lot of ways

against China. And I think that the legislation is going to be interesting how it plays out in, you know, kind of unintended consequences, we shall see. Okay, on the economic front, producer price indexes came out Friday. So you had the CPI covered in Thursday, but then PPI came and prices were up a whopping 0.8% year over year, less than 1%. Prices for intermediate processed goods are down 7.8% year over year. So on a wholesale level, you do have some real deflation. The University of Michigan Consumer Confidence number, which I never care about, it's probably the most prominently known consumer indicator came out Friday and it was at 71.2.

So it was down a whisker from the 71.6 of last month, but both months pretty meaningfully, you know, roughly 12% higher than the 64 that had registered in the month of June. Um, a lot of people reached out about the credit card debt figure came out last week 12% higher than the 64 that it registered in the month of June. A lot of people reached out about the credit card debt figure. It came out last week that we've passed a trillion dollars in credit card debt. There are a couple of video or media excerpts I'd done in New York last week where the subject came up and you may have seen some of those videos. I'm not downplaying the fact that the credit card debt has gotten to that high of an absolute level, but I am pointing out that what you really are more interested in to get an economic indicator from it is the relative data. What is that debt relative to assets? What is that debt relative to income?

And it's not even close to some of the levels that we'd seen in the past, like before the financial crisis. close to some of the levels that we'd seen in the past, like before the financial crisis. Debt service payments as a percentage of household income, that's a pretty relevant data. It sits a little below 10% right now, a little less than 10% of one's household income after tax is going towards service of debt. And that number was over 13% previously before financial crisis. So, you know, I wouldn't take any of it as it's necessarily great, but I wouldn't take any of it as being unprecedentedly bad because it most certainly is not true. Check out the link in our housing and mortgage section at the DC Today, please. As far as the Fed goes, 88.5% chance right now in the futures market of no rate change next month at the September FOMC meeting, a 61% chance of no change in November.

So that means the odds go up to 39% that there will be a rate hike at the second Fed meeting here in November. But pretty low odds for both right now. A lot more people than otherwise think the Fed is done. Goldman Sachs over the weekend put out a report indicating their belief that the Fed will begin cutting rates in the second quarter of 2024. There's so many brilliant people at Goldman, but I will say in my experience, I've talked about this before, oil prices, and then with rate projections, like most of the world, by the way, but Goldman has not had a great track record there either. So take it with a grain of salt.

God knows the media is going to cover it. Remember, when Goldman talks, CNBC listens. Okay. Out of the issues of the short-term Fed funds rate, what's the Fed going to do? Will they? Won't they? When they? What will they do? The long end of the yield curveterm Fed funds rate. What's the Fed going to do? Will they? Won't they? When they? What will they do? The long end of the yield curve is really, I think, what is much more important in terms of indicating economic growth and expectations. And there are arguments that the long, you know, look, we were at 3.75% in the 10-year a month ago. We're at 4.1, and the 10-year a month ago. We're at 4.1, 4.18 today. I'll get an updated number on that. Yeah, 4.18 right now. So the fact of the matter is that there are arguments that the long end could move higher. You have quantitative tightening still going on. But ultimately, I think inflation's

well off its peak. And I just think expected growth rates are very low. And for reasons I talk about over and over and over again, that is basically my thesis for why I see downward pressure, not upward pressure on long term bond rates. But that's an active debate right now. And I don't think that you're going to get a lot of rational discourse when the Fed is still raising rates, when the Fed still has a very high Fed funds rate. It's easier to make a prediction about the long end, you know, potentially going higher when the Fed begins cutting in the long bond, if it never gets above 5%. It's pretty hard to call for a long end at five and a half when it couldn't do it when the Fed had the short end at five and a half. So that's my take. And all that is rooted in our belief about growth

expectations. So oil today, you know, it's been in quite a move higher. Let's see, as I'm getting ready to wrap up here, oil is down less than a buck. It's still at 82 and a half. So not a big move there with oil prices. But I just got to say that you're still talking about 400,000 barrels per day being produced less. Okay, I can say this better than that. We are producing 400,000 barrels less now than we were before COVID. barrels less now than we were before COVID. You have about 40% less rigs active than you did in 2019. And obviously the Saudis have responded in kind. They're really controlling this oil price as we've surrendered so much of our own production capacity. Energy stocks, by the way,

have had the biggest technical improvement last couple months you now have 75 percent of the sector at a three-month high you have 91 percent of the sector above its 200-day moving average so there's been a lot of momentum that has moved uh there with with oil stocks and gas related speaking of which natural gas prices are dead flat since late January. You know, so you had a huge move down in beginning of January that had begun at the end of last year. And then really they're flat now over a, what is that, a seven-month period of time. And yet you had a pretty nice rally in natural gas stocks and energy stocks as of late without natural gas prices being responsible there. and energy stocks as of late without natural gas prices being responsible there. I think that that separation in correlation from commodity prices is a very good thing. Against doomsdayism, the literacy rate of the world in the 1600s, 1700s, 1800s was about 13%.

And then by the end of that century, it had doubled. And then another doubling from there. And lo and behold, we're now 83% of the world is literate. And a couple hundred years ago, it was 13%. To not appreciate that there's something wrong, I don't know what to tell you. But literacy just obviously is, talk about all the things we take for granted.

A really thoughtful question that I answer in the Ask David section today, related to a follow-up from what we covered on Friday in the Dividend Cafe, further exploration around dividend payments as a choice from the C-suite of companies and comparing some of the stock buybacks. Check out the DC Today. Okay, so that's the scoop here. As I'm sitting here talking, by now the market has closed and the Dow did end up up 26 points. S&P up 26 as well.

NASDAQ up 1% and the rest of the numbers on sectors and bond yields will be in D.C. today. I got to run, but thank you so much for listening. Thank you for reading. Thank you for watching the D.C. today. The Bonson Group is a group of investment professionals registered with Hightower Securities LLC, member FINRA and SIPC, Thank you. Any opinions, news, research, analyses, prices, or other information contained in this research is provided as general market commentary and does not constitute investment advice. The bonds to Group and Hightower shall not in any way be liable for claims and make no express or implied representations or warranties as to the accuracy or completeness of the data and other information, or for statements or errors contained in or omissions from the obtained data and information referenced herein. contained in or omissions from the obtained data and information referenced herein.

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